Question : ___________ is the risk associated with the loss of purchasing power due to inflation.
Option 1: Inflation risk
Option 2: Credit risk
Option 3: Market risk
Option 4: Liquidity risk
Correct Answer: Inflation risk
Solution : The correct answer is (a) Inflation risk
Inflation risk refers to the risk associated with the loss of purchasing power due to inflationary pressures in the economy. It is the risk that the value of money or the future cash flows generated by an investment will decrease in real terms over time.
Inflation risk affects various aspects of an individual's or investor's financial life. It can impact the returns on fixed-income investments, such as bonds or savings accounts, as the interest earned may not keep pace with inflation. Similarly, it can affect the real returns on investment portfolios, as the growth in asset values may not be sufficient to offset the impact of inflation.
Question : ___________ is the risk associated with the borrower's inability to repay the loan.
Option 1: Credit risk
Option 2: Market risk
Option 3: Operational risk
Question : What is the term used to describe the risk that changes in exchange rates will affect the value of future cash flows associated with an investment or business operation?
Option 1: Currency risk
Option 2: Liquidity risk
Option 4: Systemic risk
Question : What is the term used to describe the risk that changes in exchange rates will affect the value of an investment portfolio containing assets denominated in different currencies?
Option 3: Liquidity risk
Option 4: Market risk
Question : What is the term used to describe the risk that changes in interest rates will impact the value of fixed-income investments denominated in foreign currencies?
Option 1: Interest rate risk
Question : The following represent the opportunity cost of holding money, except:
Option 1: Loss of utility from goods that could have been purchased with the same amount of money
Option 2: Loss of interest-earning on cash holdings
Option 3: Loss of purchasing power of money due to inflation
Option 4: Transaction cost in withdrawing money
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